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Acronym Loans - who needs them?

By Hans Bruhner

Mortgage and Lending with First Priority Financial NMLS #243484

February 24, 2009 09:33 AM

You do! If you are looking to buy a home today or you are a real estate agent working with buyers OR sellers, you need these acronym loans. Ok, Ok, I need them but what the heck are you talking about?

FHA, VA, FNMA, FHLMC, USDA, PERS, STRS, CalHFA, CHDAP, DPA etc. are the acronym loans I am talking about. I probably left some out but you get the picture. I just threw the last 3 in for fun, they aren't so hot today so I am not even going to talk about them.

I started my career in 1989 in Sacramento CA and we used all of these loans back then and that is when I learned how to read tax returns and calculate down payments for FHA loans and how to interpret a credit report (without a FICO score) and write a cover letter to an underwriter...... Stated income loans did not exist, option arms did exist but only for investors and the really savvy borrowers.

Today, we have gone back to those simpler times but they are not quite as simple. We have the government involved and looking over our shoulder because of the way our business has been done for the past 5-7 years and we have loan officers leaving the business in droves (BYE!, good riddance...). I am being a little harsh but I am really glad to see the bad and the unprofessional loan officers go. I know that there were also good, hard working ethical loan officers that are having a tough time in this market but I digress.....

FHA - This is a great program that has been around since just after the great depression. It is designed with first time buyers in mind. You do not need to be a first time buyer to get an FHA loan but you don't need perfect credit or job history, you only need 3.5% down payment and it is a pretty reasonable loan. Moving to Sonoma county in 1995, I rarely did an FHA loan until 2008 when the values came down and the loan amounts went up and it made perfect sense. I was glad that I had started my career doing a ton of these loans and I feel very comfortable with all of the rules and regulations and paperwork also.
FNMA & FHLMC - I lump these 2 together because they are almost interchangeable. They are commonly referred to as Fannie Mae and Freddie Mac and they were designed to buy home loans on the secondary market to keep mortgage money flowing. They were pseudo governmental agencies until quite recently. These days, they have even more government than they ever have. The bottom line here is that these 2 agencies write the rules for conventional or conforming loans. They tell us the limit to which they are willing to buy these loans and the rules we must follow to get the loans approved.
USDA - Yes folks, the same people that put a safety seal on your beef is in the home loan business and they have been for a loooong time. The goal of this organization id to get average folks in rural communities into basic housing. You need to make 115% or less of the area's median income in order to qualify for the program but you also need to make enough money to qualify for the house payments. If you qualify and your home qualifies for this program, then you can get a mortgage with NO MONEY DOWN and no mortgage insurance. If this loan fits, it is a good deal.
VA - This is a Veteran's Administration loan and is available for veterans and their spouses. This program does not have income limitations but you do need to qualify for the house payments and fit within the VA's guidelines. This program also allows for NO MONEY DOWN and no mortgage insurance and so if it fits, it is a great deal for veterans. It does require a pest report and clearance and that can be an issue in some markets.
PERS - having started my career in Sacramento, I am very familiar with this one. This is a loan guranteed by the Public Employees retirment System. This can be a good loan for a PERS member and it is basically very much like a conventional loan and they have little perks and bonuses available to PERS members. Good stuff but a very specific clientelle here.
STRS - Much like PERS, this is a program run by the State Teachers retirment System. It is also basically a conventional loan for teachers in California. There is a very cool feature in that you can get an 80% 1st mortgage with a 17% 2nd mortgage from STRS and just 3% down from the teacher buying the home. STRS will let us qualify the teacher without counting the payment on the 2nd mortgage in their debt ratios and they won't even make you pay on the loan for 5 years. This is great for the first 5 years but you don't want to let this one sneak up on you. The beauty of having a 1st and 2nd mortgage is that you can avoid mortgage insurance altogether and so this is a better loan than FHA for many teachers.

That is basically it. In today's market, many people think that we just have plain vanilla loans and that is basically true but we do have several different toppings for those loans and you need to be working with a professional loan officer who understands these loans and has access to them all.

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